As health care costs continue to escalate and the Midwest economy continues to sputter, the questions get more complicated all the time, says Peter N. Ewend, president and chief executive officer of Saginaw Bay Underwriters (SBU) in Saginaw, Michigan.

“I don’t know what the national economic figures say, but our economy is already in recession,” he says. “Our customers are coping with a host of business concerns right now, and not the least of them is the rising cost of health care and the cost of employee benefits.”

As a result, employers in Michigan and other Midwestern states are turning to the independent agency for more than benefits coverage placement and renewal shopping, he says. They need help benchmarking their employee benefits program within their industry or business sector, redesigning their health care delivery system, and complying with increasingly complex benefits and human resources-related regulations.

“Employers’ costs have been increasingly steadily for the past seven to 10 years, and they have taken all of the obvious actions: increasing self-funding, raising deductibles and coinsurance, and attempting to better manage care,” adds Executive Vice President and Employee Benefits Division Director Arleen Schrank. “But they continue to see double-digit increases in premium. “It’s been a real challenge.”

Saginaw Bay Underwriters has deep historical roots in the region and has been helping employers with insurance-related challenges for more than 145 years. They continue that tradition with their expansion into employee benefits.

The agency was founded in 1863 to provide insurance for a thriving lumber industry in the area. Today the lumber industry has been replaced by a broad range of businesses, including manufacturing, health care, and transportation and financial services. The agency has also developed specialties in the public sector, including local government and educational institutions.

SBU now has 70 employees in three Michigan office locations, including Bay City and Midland, and generates more than $80 million in premium volume, serving more than 15,000 commercial, employee benefit and personal lines customers in the United States, Canada and Mexico. Fourteen employees work in the employee benefits division.

Three-legged stool

"We look at our business as a three-legged stool," Ewend says. About half of the agency's premium volume comes from commercial property/casualty insurance, about 30% from employee benefits and about 20% from personal lines.

However, the employee benefits leg has been the fastest growing, he notes, as the agency continues to build its reputation for innovative insurance solutions that include self-funding plan designs and new consumer-directed health plans (CDHPs).

The employee benefits division was established in 1977 by the agency’s then president, Frank Johnson, who recruited the firm’s first employee benefits producer, Carrington Beach Day, when Day was hospitalized after a skiing accident. Johnson sold Beach on a career with SBU, building an employee benefits operation.

“Frank’s vision was to have employees with specific specialties so SBU could handle all of its customers’ insurance needs,” Ewend says. The department has grown from its infancy to handling groups of all sizes, from small employers to larger multi-location groups that self-insure all or part of their employee benefits programs.

Ewend says the employee benefits division today serves customers with 25 to more than 800 employees, and it offers a wide range of benefits, including group and individual health insurance, short- and long-term disability insurance, vision and dental benefits, and 401(k) and 403(b) retirement plans.

“In Michigan, Blue Cross Blue Shield writes more than 80% of the health premium,” he says. “Since all agents can deliver the same product and price, SBU’s strength has been its ability to bring other solutions to the table. This has differentiated SBU from the traditional agents, allowing SBU to work as a trusted advisor on a proactive basis with our customers.”

Schrank agrees. “Handling the annual renewal is a relatively small part of our service, one of the last steps in our consultative approach to our customers.”

Benchmarking benefits

The agency often begins by benchmarking an employer’s present employee benefits program against national industry or business sector data, Schrank says. SBU is a member agency of United Benefits Advisors (UBA) in Indianapolis, an alliance of about 140 employee benefits agency and advisory firms.

UBA conducts an annual employee benefits benchmark survey that provides average annual health care cost and plan design information by industry, region, state and size of employer. With responses from 16,485 health plans sponsored by 11,723 employers nationwide who employ nearly 1.9 million people (approximately 4.5 million total lives), the 2007 UBA Health Plan Survey is the nation’s largest and most comprehensive survey of plan design and plan costs, according to the organization.

Schrank says the survey has helped the agency position its customers within the context of its competition, sometimes revealing imbalances in plan design that make programs more expensive than they need to be.

“Employers design their employee benefits programs specifically to support recruitment and retention of top employees within their business or industry,” she explains. “In some cases, employers have been providing a richer package of benefits than they need to be competitive in their industry. For some reason—history or corporate culture—the company is providing a richer program of benefits or paying more toward total costs than other employers in its field. This makes the company less competitive overall, undermining the future of the firm and putting jobs at risk.”

In these situations, SBU may advise transferring more cost to employees or redesigning the entire employee benefits package, providing more choice to employees for lower overall costs.

“Our goal is to get our customers on track and on target within their own competitive niche so they are providing the appropriate benefits and the right costs for their own business,” Schrank explains.

What’s more, she notes, SBU customers are moving toward CDHPs and Health Savings Accounts (HSAs), in line with a national trend toward giving employees more responsibility for their health car decisions. While BCBS of Michigan provides CDHPs and related services such as health coaching and wellness programs, the trend has led the agency to expand its own exploration of vendors and health care services for self-funded customers.

Robert W. Sidney, SBU senior vice president, notes that the agency’s relationship with local and national advisory councils has been important to the agency’s success. The agency’s strong local roots have given it contacts with local law firms and certified public accounting firms that serve their customers’ other business needs.

Trusted advisors

“Often these firms are our customers as well, making it very easy for us to collaborate on strategic consulting for our clients. When we present a proposal, we are confident that it will be compatible with the recommendations of their other trusted advisors,” Sidney says.

Internally, SBU also relies on several insurance industry advisors, including the Willoughby, Ohio-based MarshBerry APPEX Group; Nettles Consulting in Atlanta; and The Sitkins Group in Fort Myers, Florida.

Customer service is a hallmark of the agency, the executives say, and the firm’s industry advisors have helped shape the agency’s standards and practices. Producers meet with and present to clients regularly at various stages of the planning process and present an annual stewardship report, outlining the agency’s work on behalf of each client, says Chief Operating Officer Jim Roberts.

Before representing the agency at customer meetings, producers polish their presentation skills in front of their peers, and the presentation is videotaped for later critiques and comparison.

For example, Medicare Part D, prescription drug coverage for Medicare-eligible seniors that went into effect in 2006, included provisions for subsidization of employers who continued to provide drug benefits to retirees or eligible working seniors. The subsidy is based on the actuarial calculation of the value of the employer-paid prescription drug coverage compared to the value of the Medicare-available benefit.

“Some employers weren’t even aware that they were eligible for the subsidy,” Sidney says. “The formula is relatively complex, and in several cases we were able to identify their eligibility and assist them with the calculations, leading to, in at least one case, a subsidy of hundreds of thousands of dollars,” he says.

The agency has also assumed employee communication responsibilities for some clients, relieving them of the burden on frequently overwhelmed human resources departments. The agency conducts employee group and individual meetings during open enrollment, providing employee benefits communications materials and maintaining service contact with employees.

“The human resources departments are pleased to have us take on this task, and the employees are pleased that they are able to direct their questions to the SBU team on their coverage who can explain their options and assist them in making the right choices,” Schrank says. *

Robert Sidney (right) visits with representatives of a law firm client—Attorney John A. Decker and Firm Administrator Mary Beth Ciesla.

“Often these law and CPA firms are our customers as well, making it very easy for us to collaborate on strategic consulting for our clients. When we present a proposal, we are confident
that it will be compatible with the recommendations of their other
trusted advisors.”